“Vendor lock-in” – Are mid-tier accounting firms suffering from low-quality tech?

As client demands evolve, digitisation within many accounting firms has accelerated, while ongoing systemic changes such as Making Tax Digital are serving to further this trend.

But a prevailing lack of quality among tech vendors make this particularly challenging for the industry’s mid-market, according to Becky Shields, head of data analytics and AI at accounting firm Moore Kingston Smith.

Shields, who also chairs a mid-tier tech forum ran by the Institute for Chartered Accountants in England and Wales (ICAEW), argues that such firms, including Moore Kingston Smith, are likely to benefit from building their own solutions in-house.

She attributes this to accounting tech vendors failing to “keep pace” with the industry’s ever-shifting regulatory landscape, arguing that an off-the-shelf solution poses a commercial risk to the firm.

“We’re just not going to put ourselves in a position where we’re completely wedded to something like that,” she says.

Shields attributes this lack of quality in the accounting tech market to “vendor lock-in” – whereby a firm is forced to continue using a product or service due to the dominance of a small number of software providers making it impractical to switch to another. This characteristic of the market creates an uncompetitive environment and disincentivises innovation, she says.

“Partly due to a bit of laziness in terms of how the mid-tier have approach their software choices, we have allowed the market to be dominated by a handful of players who we are then at the mercy of.

“They play us off against each other as well in terms of pipeline demand. We’ll ask for a feature development and they’ll say they can’t do it because no one else wants it – they know we don’t have very many other places to go.”

Leading accounting software providers like IRIS Software Group and Wolters Kluwer are key drivers of this market dynamic, according to Shields, who says there is a lot of frustration with the relationship between mid-market firms and these larger tech companies. But according to Jim Scott, managing director for accountancy at IRIS, off-the-shelf solutions offer firms a level of assurance that can’t be attained otherwise.

“Where you’re allied to a vendor, what you get is the assurance that you don’t have to dedicate your time, effort, money and resources to maintaining the compliance requirements that are constantly shifting. And those burdens are only going to become more and more difficult to manage or navigate.”

A similar view is held by Simon Kershaw, technology director at Wolters Kluwer, who says that vendors are “doing something wrong” if quality is not top of their agenda.

“I take the point that there are limited providers, particularly when we’re talking about those more rich solutions. But I don’t necessarily think that, because of the lack of supplies in the market, the quality isn’t great – we live and die by our quality.”

Wolters Kluwer’s solutions are currently used by all of the UK’s top ten accounting firms, in addition to 27 of the top 30, Kershaw adds.

Developing bespoke accounting tech

Moore Kingston Smith has recently opted to undertake a bespoke approach to the digital transformation of its personal tax department, with the aim to create a platform where clients can view their tax liability in real time. Outlining the rationale for the project, Shields describes the “ridiculous” amount of admin associated with advising clients on tax-related matters.

“Where we need to end up is with processes that don’t need human intervention, such as the transfer of data being handled automatically, ensuring that human interactions are reserved for the high-value-add areas”

To ensure the digital transformation project is a success, Moore Kingston Smith has mapped the entire customer journey within its personal tax department, pinpointing key challenges and ‘quick wins’, as well as identifying capacity uplift opportunities and profitability improvements.

For Shields, these phases are critical to the project’s central purpose – to create a tailored, and consequently more effective solution.

“We very much wanted to design something that was actually with the client at heart,” she says. “You just never get that opportunity when it comes to off-the-shelf because it’s largely just designed by accountants for accountants.”

The firm is currently in the final stages of its digital transformation project, having previously executed the ‘quick wins’ that were identified early on. These largely centre around business process optimisation, and include integrated end-to-end workflow, scheduled client communication, and workflow notifications. In the medium to longer term, the intention is to integrate capabilities such as intelligent document management and capture, a self-service dashboard, and life event-based advisory.

For Shields, such capabilities encapsulate one of the key purposes of this new system: to provide the functionality for end-to-end automation while allowing for appropriate touch points to enable a more tailored service for the client. However, she goes on to acknowledge some of the limitations and obstacles associated with such a project, noting the change management aspect as “one of the hardest parts”.

“We’re sort of trying to keep the momentum going in terms making all of the necessary changes, but when people have been overloaded with new ways of working and different systems they don’t know how to navigate, there is a bit of change inertia that sets in.”

People just want to know what they’re going to be doing in six months, Shields explains, so it becomes a balance between making the necessary changes whilst not overwhelming teams. If you can’t fully articulate the benefits of the change, then it can often just feel like change for change’s sake, she says.

Shields also addresses the costs associated with the project, which is another commonly cited issue with bespoke solutions for small and mid-market firms. Though the tool will be built into the cost of Moore Kingston Smith’s service offering, she argues that efficiency gains should make projects like this pay for themselves.

“You have to be very clear on how you’re going to get that payback and what it looks like. And that’s not only to make the investment decision, but also to manage the success of the implementation thereafter. It is necessary because technology is essentially a longer-term play to remedy some of the problems we’re having with regards to staffing levels.”

For a project such as this, a payback period of around 12 to 18 months is typical, Shields adds.

The off-the-shelf approach

But despite this, Shields acknowledges the elephant in the room when it comes to building such systems in-house: the internal capabilities required. Moore Kingston Smith may be an outlier in possessing a dedicated digital transformation team, she says.

Partly for this reason, fellow mid-tier firm Haines Watts is a proponent of the off-the-shelf approach. However, associate director Riaz Kala also argues that today’s vendor market can offer a great deal of customisability, adding that the firm is committed to Xero as its main technology provider.

Data processing, reporting, forecasting and payments are critical pieces for Haines Watt’s clients, and Xero’s array of accounting tools adds significant value in these key areas, he says. Kala also praises the ease with which client bases can be migrated to and from various apps in Xero’s app store, noting that this is another key advantage of off-the-shelf packages.

“For the most part, you can move out of these apps quite quickly. It’s just the transfer of data into another solution.”

But the central aim for any accounting solution, Kala says, should be to automate repetitive tasks to provide a more attentive service to clients.

“It’s about information flowing far more regularly so you’re spending less time retrieving and processing.”

This, Kala explains, allows for the creation of more regular, practical, and narrative-driven conversations with clients about ambitions and growth plans.

These factors contribute strongly to Haines Watts currently having no plans to create a bespoke solution, with the firm committed to the “diversity” of an off-the-shelf approach.

Kala’s stance is echoed by IRIS’ Scott, who argues that where workflows are “more complex or integrated” a vendor’s customisable solution can be a major value-add.

“There’s a good case for adapting some workflows to fit a more customisable solution. We’ve got some very intimate relationships with customers in this space, and we do an awful lot of work with them to make sure that the products are adapted and customised accordingly.”

Scott goes on to cite conducted by IRIS earlier this year, in which 40% of accountants said the current legislative burden is giving them “sleepless nights”. This is another example of the advantages on offer by taking an off-the-shelf approach, he says.

“To me, this says that where they have the legislative concern, they would much rather have a robust, assured piece of technology to manage that workflow.”

Wolters Kluwer’s Kershaw is also aligned with Kala, this time echoing the “diversity” piece. Responding to the argument that a bespoke approach offers more customisation and flexibility, he argues that some vendors’ products can be considered an “off-the-shelf bespoke solution”.

“You might find that with a solution like ours, once you configure it and you understand how it’s best used for your scenarios, then you’re probably in a better place than if you’ve just tried to piece together three or four different solutions and then tried to integrate them.”

Kershaw goes on to draw a distinction between a “completely bespoke” package, and a “tailored” integrated suite – “it’s the best of both worlds”.

But for Moore Kingston Smith’s Shields, a true bespoke solution and a tailored off-the-shelf product are barely comparable. While a great deal of customisation may be available, you simply don’t get the same degree of agility, she says.

“No one firm is the same – we all have differences in the way we deliver our services, and nuances in the client bases.

“So there would just never be that same level of bespoke. They do have customisation and I won’t deny that, but you’re always still stuck with one tech vendor.”

Finally, and in spite of her acknowledgment of Moore Kingston Smith internal capability advantages, Shields argues that the “frustration” with the major vendors should spur similar levels of investment from other mid-tier firms.

“There’s got to be a point at which we say, ‘that doesn’t work for us anymore’.

“If they don’t have the same vision of the future as you do then you’ve got to bite the bullet and build that capability in-house.”